While prompt-month natural gas staged a feeble rally Friday afternoon, the real news of the day was the 25-cent and greater losses across most winter contracts. October natural gas traded within a $4.810 to $5.070 range before settling the week at $4.982, up 9 cents on the day, but 69.3 cents lower than the previous Friday’s close.

Winter month futures continued to free-fall Friday, with December finishing at $7.774, down 27.3 cents for the day and $1.746 lower for the week, while January 2007 shed 26.8 cents Friday and $1.681 for the week. February 2007 lost 26.3 cents Friday and $1.661 for the week.

“It’s hard to call Friday’s action any kind of a rally when December and January futures were down 27 cents,” said Tim Evans, an analyst with Citigroup. “This is the sort of move where the nearby market is going to have trouble getting its feet back under it while the forward months continue to dive. While October may look like a bargain on a spread basis, where it is going to decline more slowly than the out months, it might still have trouble holding the floor.”

Evans noted that the downside risk for October is a lot less clear than for the forward months. “October might not have much more room to fall in the sense that it is now relatively competitive on a price basis to coal,” he said. “However, with such a high natural gas storage level, we may be in a situation where marginal production still has trouble finding a home in storage. It doesn’t take that much of that to leave the downside open.

“It’s tempting to say that we have fallen so far that there has to be a floor here somewhere, but even if there is a floor at $5, that still leaves a lot of downside risk for a January futures contract currently at $8.50. You also have to remember, even if there is a floor at $5, that doesn’t necessarily mean that there is much or any upside potential from here,” he added. “You have to remember that without a dramatic fundamental event, a rounded bottom on the charts is far more common than a V-shaped bottom. If we were to see a late-season storm in the Gulf of Mexico, we might see at least some short-term short-covering. Some of these colder temperatures expected for the northern U.S. could provide a little bit of gas demand that could help to stabilize the market in the weeks ahead, but that is going to come in the form of subtle support, not dramatic support.”

Analysts see a pervasive “sell” mentality across the petroleum sector. “It’s hard to see what it will take to stem the selling in the energy markets,” said Edward Meir, analyst at Man Financial. “Certainly, there has not been anything that alarming on the fundamental side to give prices a boost.”

Others see a buying opportunity. Tom Saal of Commercial Brokerage Corp. in Miami, in his work with Market Profile, suggests that in Profile parlance Thursday was a double-distribution trend day. A trend day is one in which prices make a nonstop move either higher or lower starting at one price extreme and rising or falling to the other throughout the trading day. Helped by the bearish 108 Bcf storage injection report in the morning, October futures Thursday opened at $5.330 and settled at $4.892, a gut-wrenching loss of 55.7 cents from Wednesday’s settlement.

A double-distribution trend day means that within the trading day the market consolidated for brief periods and formed a “mini-distribution” within the overall price decline. Saal called such a pattern one of “exhaustion” which signifies an end (in this case) to the price decline. “It’s a reliable trade to buy a lower open after an exhaustion move the day before,” he said.

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